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Are you submitting Qualified Client Money Reports to the SRA when you need not?

By Jane Mather

The SRA (Solicitors Regulatory Authority) have published a report on the impact of the changes to the SRA Accounts Rules reporting requirements to date. In November 2015 the rules were changed so that not only were a number of low risk firms exempted from needing a report, but also so that reports were only qualified where there was a real risk to client money. This involves the accountant using their judgement to assess whether a qualification is necessary.

The SRA use accountant’s reports as a part of their risk management process. Historically due to the pernickety nature of the existing rules there were many qualified reports that arose due to relatively minor breaches that did not really put client money at risk. Between June 2012 and December 2013, more than 50% of reports were qualified but only 1% required further investigation by the SRA.

The impact of the changes on the number of reports received by the SRA is quite dramatic.

 

No. qualified reports

Considered for investigation

Investigated or under investigation

1 June – 30 Nov 2015

2,797

70

38

1 June – 30 Nov 2016

1,104

94

91

1 June - 30 Nov 2017

923

121

121

 

The SRA report states that the law firms are taking qualified reports more seriously now and as a result want to improve their systems and procedures, which they didn’t necessarily do before. As a result of the changed reporting requirements, the SRA are also able to focus on real risk areas rather than processing a high volume of low risk reports. They also state that they are taking more cases forward and that the quality of the reports received is increasing.

One of the findings of the report however, is that they are still receiving a large number of reports that do not require any further consideration or investigation. The inference being that they should not be qualified. Appendix 1 to the report identifies the three key areas where his occurs;

  • Where the firm has not moved balances quickly enough, but have identified the issue and taken remedial action.
  • Where the firm has failed to transfer costs within the prescribed 14 days and there is no indication of any sinister reasons for this.
  • Where the accountant has listed several trivial breaches which have been addressed by the firm and do not put client money at any risk.

The crux of the issue is whether client money is at risk. Un-remedied systemic failures could mean it is so we cannot just ignore the matters above but in isolation they are unlikely to warrant a qualification.

The report also details what, in the SRAs view makes a good qualified report, the key is clear information on;

  • The breach identified

>   How many breaches have occurred

>   How much money is involved

>   The duration of the breach

  • What steps have been taken to remedy the breach and make sure it doesn’t happen again
  • What steps have been taken to identify its source
  • The reporting accountant’s professional opinion on whether the breach was significant

The report also includes examples of good reports and those that require improvement.

Phase three of the regulatory review, which is expected to be implemented at the earliest late this year, will see a vast simplification of the rules. There will be a small number of principles-based rules, all of course surrounding keeping client money safe, which the SRA expect will result in even less qualified reports as the pernickety old rules are replaced with more modern flexible ones.

If you would like to read the whole report you can access it here

 

June 2018 

 

Disclaimer
This article is published with the understanding that SWAT UK Limited is not engaged in rendering legal or professional services. The material contained in this article neither purports, nor is intended to be, advice on any particular matter. This article is an aid and cannot be expected to replace professional judgment. SWAT UK accepts no responsibility or liability to any person in respect of anything done or omitted to be done by any such person in reliance, whether sole or partial, upon the whole or any part of the contents of this article.